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Salary Revalue Index

Discussion in 'Retirement' started by pauljoecoe, Nov 27, 2019.

  1. pauljoecoe

    pauljoecoe New commenter

    Can some explain (in simple terms) what this is about? Does it apply to Final Salary 80th Scheme or just to Career Average? This was 2007-8

    upload_2019-11-28_7-55-5.png
     
  2. diddydave

    diddydave Established commenter

    It has nothing to do with the Career Average it is only used in the Final Salary calculation.

    In the final salary scheme there are two ways to work out what your "Final Salary" is. The method B uses your best 3 years from the last 10 (or the last 10 from when you left or took a break from the scheme). To bring the salaries into today's terms the salaries are adjusted for inflation. Since 2008 (11 years ago) inflation has been around 2% a year which is why your original salary of 41,111 has been increased by 23.70%.

    The difference it can make to your pension is significant.
     
    pauljoecoe likes this.
  3. Luvsskiing

    Luvsskiing Occasional commenter

    The final salary scheme uses the average of the salaries in your highest paid three *consecutive* years in the last 10 *working* years, or your final salary, to work out your pension - important if you have a career break or any reason. Each year in the best three consecutive years used in your calculation is adjusted to take into account inflation, to find out e.g. what a salary worth £50000 8 years ago is worth today.

    Here's the really really really important thing. Each year is adjusted by a *different* amount, depending on what the inflation rate was in that particular year. E.g. if one of your best years was 2010, whatever you earned that year is revalued to today by a whopping 4% approximately, because inflation in that year was so high. OTOH, if one of your best years was 2018, it will only get added to by about 1%, because inflation was so low.

    This creates some strange results for some teachers and why they have to sit up and take note, especially if they earned the most they have ever earned back around 2009 and the few years after that. Some teachers find that it actually pays them to leave the final salary pension scheme to preserve those best years; if their best years start dropping away from the calculation because of 'the last 10 working years' rule, and they then have to start using later years with a far lower inflation rate in the calculation; their pension actually goes down not up, even though they are still working and still have been contributing for an extra year!!

    The first step in seeing where you are, is to phone TP and request a year by year salary history and revaluation rates.
     
    pauljoecoe likes this.
  4. diddydave

    diddydave Established commenter

    It's better than that too because it is increased by the inflation figure year after year ..so 4% for 2010, then 2% is added for 2011, and so on up until today...which is why the figure the op shows is 23.7% - we've not had inflation that high :) for one year.
    It's even easier as they've now put these on your benefit page, so you no longer have to ask... they're there already...though I'm not sure if they have sorted out showing figures from before any break.
     
  5. 60sunnysmile

    60sunnysmile New commenter

    I have checked my statement today and I notice that the last 15 months are average salary year 1 and have a 0 for the salary revalue index. So the original salary and the revalued salary are the same. I am expecting a pay rise in December that will be backdated to 1st of August. I expect to get a 2% pay rise. I understand that this pay rise will trigger a revaluation of my salary up to 31st July. My question is, what salary revalue index will they use? Do we all get the same?
    Also, I am planning on retiring in June 2020 so it is likely that I will not have another pay rise. What salary will they use for the final salary pension calculation?
     
  6. diddydave

    diddydave Established commenter

    The tables used are published on this page and yes, we all get the same increase: https://www.gov.uk/government/publications/public-service-pensions-increase-2019 (though deferred members pensions are worked out slightly differently - they get the increase to the date they left the scheme - which is, I believe, why the OP's salary index figure isn't exactly the same as in this table - they will have used the 2018 table...BUT they don't miss out on the 2018-2019 increase because once their pension is calculated, to the date they left in 2018, it is then increased by the 2018-2019 index...mathematically it is the same (e.g. 2 x 3 x 4 = 3 x 4 x 2)

    Your latest salary is for the current year and the inflation increase is to bring salaries up to their equivalent in today's money...as your current salary is already in 'todays money' there isn't an increase.

    Your benefit statement under the final salary scheme will tell you the salary currently expected to be used and which period it has been worked out from...if it is your best 3-in-10 from 10 years ago then you should probably work out exactly how much you will get and whether you could get MORE by opting out for a month NOW.
     
  7. pauljoecoe

    pauljoecoe New commenter

    OK, Thanks. That seems to make sense. However it brings a further question. This was my highest evaluation. It was in Sept 2007- March 2008. The next best is £50762 in 2009-10. (£94 less) It's all down hill quite markedly from then on.

    I stopped paying into the TPS in August 2017 and am now a deferred member. Not intending to return to teaching in the UK and will probably to claim it next October time. Does this protect me on that amount or should I be claiming my pension ASAP to stop any further loss?
     
  8. diddydave

    diddydave Established commenter

    You are fine, the break protects it. By taking a break even if you did come back and do some more teaching in the UK and join the TPS again your salaries from 2007 to 2017 will be used to work out a pension. If this is the highest of all the calculations then you will get it.
     
  9. diddydave

    diddydave Established commenter

    If you look on the TPS website at the last 3 benefit statements you will see that they, under the "Summary of benefits - 80th Scheme Arrangements", that the 'salary' they have used remains the same but that it gives you a higher pension figure each year - this is because they work out the pension to the date you left and then increase it by inflation each year.

    If you go back into teaching this calculation is called the 'hypothetical calculation' and is done for every break in service.
     
  10. brook123lyn

    brook123lyn New commenter

    Just to jump in here. Me and husband both retiring in Summer 2020. I kinda knew that our best years were slipping away, so to speak, but it wasn't until I found and really examined the published salary figures in his benefit statement that I could compare what is likely to happen. I have rung TP but they couldn't give me accurate figures to compare a) continuing on paying in until the summer or b) jumping out at the end of this month -so using all my acquired maths skills and spreadsheets ( you are a star diddydave ) I have crunched some numbers .Not my field but I have given it a go. His average salary would drop by £1000 because of the falling index (from 22.73%) meaning that not only would we get slightly less out of the scheme but we would have paid an extra £3085 contributions to TP to get that slightly less. When you add my part time contributions that really starts to add up. I wish I had "got" all this earlier (even at the start of the school year ) and whilst you were all brilliant and discussing this very stuff on here I felt it beyond my understanding then. We are both a little nervous about opting out but other than the death in service benefit ( which we could perhaps insure against ?), can any of you wise bods think of any other downsides?

    I can't state enough how much all of your previous advice has helped us both.

    I also wonder/worry how many other teachers like me are seeing money drift away after such long service without knowing/understanding ?
     
  11. diddydave

    diddydave Established commenter

    I'm presuming you are 'protected' members who are fully in the Final Salary scheme, if not then opting out for a month and then back in gives you (imo) the best combination.

    We took out life insurance for the same amount (3 x salary).

    Another downside is that although you will not pay the pension contribution you won't get all of it because it is taxed...though you can look at putting that into a private pension or AVCs (or even into buying additional pension before you leave the scheme if you have sufficient savings to do so before you don't pay the pension).

    Finally we don't know what remedy the tribunal will come up with but I can't see them changing the fundamental rules of the old system but there is always the chance that being out of the system may have an effect - personally I'd ignore this one.
     
  12. brook123lyn

    brook123lyn New commenter

    thanks Diddydave great advice as ever! We are both tapered members - he missed cut off by three weeks(!) so we're leaving with AAB before CARE changes come in for us. I have already alerted some good friends in CARE though to your thread here because for me freezing the best 10 seems essential.
    Can I ask, did you get life insurance just for the month you opted out ?
    This whole pension process feels like I'm in some kind of "buyer beware" system and I couldn't have done it without this forum . Thank you
     
  13. diddydave

    diddydave Established commenter

    We both left in 2017 but I've got a few years to go before I reach 55 - we currently have a joint life insurance policy, I think it's about £15 a month.

    I agree with you that the pension scheme can seem daunting. TPS won't give advice and so you really do have to get to understand how it works. I've been badgering many of my ex-colleagues/friends to let them know just how bizarre a position they are in. Unfortunately for many opting-out to get a greater pension is a very counter-intuitive move that just paralyses them. Bizarrely if schools actually took notice of this and acted they could actually do their staff a favour AND save themselves a lot of money - their contribution to the scheme of over 20%!
     

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